Ratings downgrade no threat, says Costa Rica’s Solís

Jun 11, 2014

New president of Central American sovereign says growth and FDI will help ease fiscal pressures as threat of junk-rating looms

Costa Rican President Luis
Guillermo Solís

Costa Rica’s new president, Luis Guillermo
Solís, has mounted a vigorous defense of his
administration’s plans to reduce the
country’s mounting fiscal deficit, telling
LatinFinance in an interview that he is
confident that his country can avoid a ratings downgrade.

Solís, who took office last month,
defended his government’s plans to overhaul the
country’s tax system, in the wake of growing
concern among analysts over the country’s fiscal
gap. Ratings agency
Moody’s in September placed the sovereign on
negative watch, warning that it’s rising debt
burden could cost the country its investment grade (Baa3)
rating.

Solís’ administration
last week presented a tax evasion bill to parliament in a bid
to boost revenues. The president said he is working with other
parties to draw up a fiscal reform bill — although
that could take two years to take effect.

Solís
told LatinFinance he was confident that the
country would avoid losing its investment grade status with
Moody’s. He said an announcement Tuesday by
computer chip maker Intel that it will consolidate its presence
in the country was evidence that Costa Rica’s
economic prospects remained strong.

"It shows that above and beyond the
immediate context — which has not been easy over the
past few months — the country remains stable and
remains good partner," he said. "And I hope that this will be
looked upon with interest by the companies that grade the
economy."

But he nevertheless acknowledged the scale
of the challenges facing the economy, which this year has seen
violent swings in its currency.

"The international impact of global trends
may be detrimental to the country, but this is true of all
countries. We have to keep that in mind and ensure that
we’re stable and the macroeconomics of the country
are fine. Which so far I think we’ve been able to
manage."

Solís, in New York on Wednesday on
an investment marketing trip, said that a long-term strategy of
dealing with the financial system, the currency and economic
growth would help address the rising borrowing costs.

"I think it’s a matter of
concern — just as it is having a 6% deficit.
It’s not catastrophic either. We’re
not at brink of going into a situation similar to the one some
European countries just faced, but we have to take care of
that….

"The international impact of global trends
may be detrimental to the country, but this is true of all
countries. We have to keep that in mind and ensure that
we’re stable and the macroeconomics of the country
are fine. Which so far I think we’ve been able to
manage." LF